Once you have completed your Materiality study, as discussed in our article, your company’s ESG targets become clearer. Briefly reiterating the materiality study process, you identify who the stakeholders of your business are (customers, investors, workers, community) and survey them to see what issues matter most to them. The materiality study typically results in a Materiality Matrix, which plots ESG issues based on two criteria: impact on the business (financial risk or opportunity) and importance to stakeholders. The issues that fall into the upper-right quadrant—those scoring high on both importance to stakeholders and impact on the business—are deemed the most material to your business. These are the issues that must form the core of your ESG strategy. These issues will be related to the core pillars of ESG. The strategic pillars of ESG (Environmental, Social, and Governance) are the three core areas that companies focus on to assess their ethical impact and sustainability performance. These pillars guide goal setting, risk management, and value creation.

1. Environmental (E)

The Environmental pillar covers a company's impact on the natural world, including the resources it uses and the waste it generates. The focus is on minimizing environmental harm and adapting to climate change.

• Climate Change & Emissions: Addressing a company's carbon footprint, setting targets for reducing greenhouse gas (GHG) emissions (Scope 1, 2, and 3), and transitioning to renewable energy.


• Resource Management: Focusing on the efficient use of scarce natural resources, such as reducing water consumption, promoting circular economy practices, and achieving "zero waste" goals.


• Pollution & Biodiversity: Managing air and water quality, properly handling hazardous waste, and protecting local ecosystems and biodiversity near operational sites.

2. Social (S)

The Social pillar addresses how a company treats people, including its employees, customers, suppliers, and the communities where it operates. It focuses on fair and ethical treatment.

• Human Capital & Labor: Ensuring excellent workplace health and safety (H&S) standards, fair wages, employee development, and managing diversity, equity, and inclusion (DEI) initiatives.


• Human Rights & Supply Chain: Auditing the supply chain to prevent child labor, forced labor, and other human rights abuses, and ensuring fair working conditions throughout the value chain.


• Community Relations: Engaging with local communities, contributing to social and economic development, and ensuring products and services promote customer well-being and privacy.

3. Governance (G)

The Governance pillar refers to the internal system of practices, controls, and procedures used to manage and oversee the company. It ensures transparency, accountability, and ethical decision-making.

• Board & Leadership: Focusing on the composition, independence, diversity, and effectiveness of the Board of Directors, and ensuring proper oversight of management.


• Executive Compensation: Structuring executives’ pay to align with the company's long-term strategy, including linking compensation to the achievement of ESG targets.


• Ethics & Compliance: Implementing strong anti-corruption policies, robust whistleblower protections, transparent lobbying practices, and ensuring full compliance with laws and regulations.

Now that you understand the strategic pillars of ESG Report and have your materiality study conducted, you are ready to create your company’s goals and objectives for its ESG journey. The Goal-Setting Breakdown:

1. Identify Material Issues: Review the matrix to pinpoint the top 5 to 10 most material issues. For a manufacturer, these might include high energy consumption, water scarcity, employee health and safety, ethical supply chain, and end of life management.


2. Translate Issues into Strategic Pillars: Group related material issues into broader strategic pillars of which there are three: Environmental, Social and Governance (ESG). For instance, high energy consumption and water scarcity could be translated to the "Resource Management" pillar of the Environmental core.


3. Define Goal Intent: For each pillar, determine what success looks like. The goal must be relevant, specific, and directly address the material risk or opportunity. The intent for "Resource Efficiency" might be to decouple resource use from production growth while reducing operational costs.

Step 2: Using Material Goals to Establish a Baseline Once the material goals are defined, the next critical step is establishing a baseline. A baseline is the initial, quantifiable data point against which all future performance and progress toward the goal will be measured. It provides a clear starting point for accountability. Establishing a Baseline is a Three-Part Process:

1. Define the Metric: The material issue must be translated into a measurable metric. If your goal is to reduce GHG Emissions, your metric should be metric tons of CO2 equivalent (tCO2e) for Scope 1 and 2 emissions.


2. Define the Scope and Timeframe: Clearly define what is included in the measurement (e.g., all global facilities, only manufacturing sites, etc.) and select a base year (e.g., fiscal year 2024). The base year should be a typical, representative year of operation. Pro Tip:


3. Collect and Validate Data: Systematically gather the data for the defined metric within the base year. This involves extracting data from internal systems (like energy logs and HR records) and financial reports. Crucially, you should normalize the data against a business driver, such as revenue or unit of production. For example, instead of using total water use, use liters of water consumed per ton of product produced. This makes the metric relevant even as your business grows. Finally, have the baseline data internally or externally audited to ensure accuracy and credibility before public disclosure.

It is important in preparing your baseline to understand how much data you can collect for your baseline. It is highly recommended that you do not set a baseline year for which you have no or little data to measure your progress or goals against, unless you intend to address this in the narrative of your ESG Report. Resulting Goal Structure: The SMART Framework The combined output of the materiality assessment and baseline setting should yield SMART (Specific, Measurable, Achievable, Relevant, Time-bound) goals. For example, if the material issue is climate risk due to operational emissions, the final goal should look like this:

• Specific & Relevant: Reduce Scope 1 and 2 GHG emissions.


• Measurable: By 35% from the 2024 baseline.


• Achievable & Time-bound: By the end of Fiscal Year 2030.

By following this rigorous process, a company moves beyond general aspirations to create a credible, data-driven ESG strategy that focuses resources on the issues that matter most to long-term value creation.